prepare a production budget and a direct labor budget by month and for the first quarter of 20x1.
Problem 9-31 Production and Direct-Labor Budgets; Activity-Based Overhead Budget (LO 9-3, 9-4.9-5.9- 6) (The following information applies to the questions displayed below.) Spiffy Shades Corporation manufactures artistic frames for sunglasses. Talla Demarest , controller, is responsible for preparing the company's master budget. In compiling the budget data for 20x1, Demarest has learned that new automated production equipment will be installed on March 1. This will reduce the direct labor per frame from 4.0 hours to 3.75 hours. Labor-related costs include pension contributions of $1.05 per hour workers' compensation insurance of $0.75 per hour employee medical insurance of $3 per hour, and employer contributions to Social Security equal to 700 percent of direct- labor wages. The cost of employee benefits paid by the company on its employees is treated as a direct-labor cost. Spiffy Shades Corporation has a labor contract that calls for a wage increase to $15.00 per hour on April 120x1. Management expects to have 22,000 frames on hand at December 31, 20x0, and has a policy of carrying an end-of-month inventory of 100 percent of the following month's sales plus 50 percent of the second following month's sales. These and other data compiled by Demarest are summarized in the following table. January 4.0 $ 13.00 14,000 $ 68.00 February 4,0 $ 13.00 16,000 5.65.50 March 3.75 13.00 12.000 56use April 3.75 $15.00 33.000 $ 6550 May 3.25 SSL.00 13,000 SP Direct-labor hours per unit Wage per direct-labor hour Estimated unit sales Sales price per unit Production overhead: Shipping and handling (per unit sold) Purchasing material handling, and inspection (per unit produced) Other production overhead (per direct labor hour) $ 1.00 $ 100 S. 100 2.00 $2.00 $ 2.60 2.00 2.00 $2.00 $9.00 $9.00 9.00 2.00 900 March Quarter 42,000 19,500 61,500 SPIFFY SHADES CORPORATION Budget for Production and Direct Labor For the First Quarter of 20x1 Month January February Sales (units) 14.000 16,000 Add Ending inventory 22,000 18,500 Total needs 36,000 34,500 Less: Beginning inventory 22,000 22,000 Units to be produced 14,000 12,500 Direct labor hours per unit 4.00 4.00 Total hours of direct labor time needed 56,000 50,000 Direct labor costs Wages S 728,000 Pension contributions Workers' compensation insurance Employee medical insurance Employer's social security Total direct-labor cost $ 728,000 $ 0 12,000 19,500 31,500 18,500 13,000 3.75 48,750 22,000 39,500 154,750 $ 0 $ 0 $ 2.00 Purchasing, material handling, and inspection (per unit produced) Other production overhead (per direct-labor hour) $ 2.00 $ 2.00 $ 2.00 $ $ 9.00 $ 9.00 $ 9.00 $9.00 $ Problem 9-31 Part 3 3. Prepare a production overhead budget for each month and for the first quarter. SPIFFY SHADES CORPORATION Production Overhead Budget For the First Quarter of 20x1 Month January February Shipping and handling Purchasing, material handling, and inspection Other overhead Total production overhead $ 0 March Quarter 0 $ 0 $ 0
